Varco Will Lay Off 45; 26 to Retire

Bracing for a 20% to 30% further decline in its flagging oil-service business, Varco International is laying off 45 of its 400 employees today and has accepted voluntary early retirement from another 26 senior staff members.

Dick Kertson, Varco's vice president of finance, confirmed Thursday that the Orange-based manufacturer of oil-drilling equipment initiated an early retirement incentive program last week, followed this week by "across-the-board" layoffs, ranging from managers to engineers and secretaries. He estimated that the cuts would save Varco about $2.8 million annually in overhead.

Included in the layoffs and early retirements, Kertson said, are 54 of about 250 people employed at the company's Orange County headquarters. Other staff reductions, he said, were made at the company's operations in Houston, Scotland, Singapore, London, Canada and the Middle East.

Employees who have chosen early retirement will be leaving the company over the next two to four months.

The staff reduction, Kertson said, is the company's response to a dramatic decline in oil drilling activity in the wake of collapsing crude oil prices. In the second quarter of 1986, he said, the company anticipates a decline in its shipments and sales of oil-drilling equipment "in the 20% to 30% range."

Kertson did not rule out further layoffs at Varco, which has been in a belt-tightening mode since 1981, when its employment peaked at about 1,650. "I think with the state of oil prices and the oil industry, I would make no forecast about future levels of business," he said. "We are in a position where we are dealing with the business a quarter (of a year) at a time."

T. Wayne Whipple, a vice president and oil industry analyst with Merrill Lynch in New York, said: "The whole energy and oil service industry is reeling under the collapse of crude (oil prices)."

If the prospect for new orders proves as bleak as projected, Whipple said, Varco will start posting net losses in the second half and probably will be forced to make more employee cuts. "The handwriting is there," he predicted.

As previously reported, Varco posted a net loss of $1.7 million in 1985, a sharp reduction from its net loss of $17.8 million in 1984. The company earned $504,000 during the fourth quarter of 1985, a figure that Kertson expects will be similar to the company's earnings for the first quarter of this year.

But Varco's financial future is growing increasingly shaky. Earlier this week, the company said that it had not received any new orders for its once extremely popular top-drive drilling system, which last year accounted for about a third of the company's annual revenue of $60.6 million. Existing orders for the drilling system, Varco said, would be filled by the end of March.